- Many entrepreneurs raise seed money for their startups through friends and family funding.
- Friends and family generally offer better terms and demand less oversight than most institutional investors, which is the appeal of this kind of seed round.
- The cofounders of Doorvest, Andrew Luong and Justin Kasad, avoided the discomfort by texting their loved ones an invitation to invest.
- They received over $128,000 through 23 different friends and family investors. After opening up Doorvest to institutional investment, the startup raised $1 million in total pre-seed funding, according to a spreadsheet shared with Business Insider.
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Founder Andrew Luong knew that he and his business partner, Justin Kasad, were onto something with their startup idea, Doorvest. The company helps users own high-yield, single-family rental homes by streamlining the process of researching, acquiring, renovating, and then renting a property.
When the two decided to raise funds, they knew they wanted to start with a friends and family round. In friends and family financing, founders approach their loved ones and circle of friends to ask for seed money for their business idea.
These conversations can be awkward, but friends and family generally offer better terms and less oversight than institutional investors, which makes this kind of seed round a popular starting point in the fundraising process.
Luong and Kasad were confident that their pitch would attract interest from venture capitalists. The business plan was rock solid, and the two entrepreneurs came from tech backgrounds. They had a strong sense that when they wanted to raise institutional capital, they would be able to.
The Doorvest founders wanted to give their circle a chance to invest in an early-stage startup, an opportunity few people have.
“Yes, it was technically an investment into Doorvest, but the angle that we were pitching was more about giving them exposure to early-stage startups, or angel investing, which is something that we believe is an awesome class that most people don’t have access to,” said the 26-year-old Luong.
Because they were focused more on giving their friends and family an opportunity, rather than present a typical pitch, with a deck, financial analysis, and other standard resources, Luong and Kasad kept it simple.
They sent a text. Here’s what it said
Soon after texting their friends and family, Luong and Kasad began seeing the investments roll in. According to documents reviewed by Business Insider, most of the investments ranged between $1,000 and $5,000, a sizable chunk of money for amateur investors.
They received donations from 23 different friends and family members, totalling $128,000.
After their friends and family round, Luong and Kasad opened Doorvest up to institutional investors and closed a $735,000 round, with Mucker Capital as the lead investor. Doorvest also received $140,000 in funding from angel investors (that were not part of the friends and family round). All told, Doorvest was able to raise $1 million in total pre-seed funding.